All posts by Fit Investment Ideas

Making money is about great ideas. This is what this blog is all about.

RANA GRUBER – Riding the raw-material rally

DNB RESEARCH PUBLISHED TODAY. We are long Rana since the IPO.

Riding the raw-material rally

We expect solid EBITDA of NOK323m in Rana
Gruber’s first quarterly report. As the entire iron ore
futures curve has shifted up by cUSD17–18/t since
early March when we initiated, we have raised our
2021–2023e EPS by 5–54% and our target price to
NOK95 (85), to reflect the improved cash position and
better earnings prospects. We expect a first quarterly
DPS of NOK2.7, equivalent to a 70% payout ratio. We
reiterate our BUY and highlight Rana Gruber as one of
the most attractive stocks in our coverage exposed to a
potential continued raw-material rally.

Q1e EPS of NOK3.8. We estimate the average iron ore price was USD166/t in Q1, which would have yielded EPS of NOK6.0 with no effect from hedging; but, as c180,000 tonnes was hedged at cUSD99/t, we expect a hedging loss of NOK102m, leading to reported EPS of NOK3.8. Thanks to the strong price outlook, we believe
this is sufficient to allow the company to pay its first quarterly DPS, of NOK2.7, representing a 70% payout ratio. The results are due at 07:00 CET on 12 May.

Iron ore prices hitting new highs. Iron ore spot prices have risen from USD165/t when we initiated coverage in March to USD183/t. More importantly for the valuation of Rana Gruber, the futures curve has increased by a similar amount. As a result, we have lifted our 2021e EPS by 5% and 2023e by as much as 54%.

BUY reiterated and target price raised to NOK95 (85). Despite a very strong backdrop of rising iron ore prices, we continue to highlight the significant risk that they could swiftly fall to around Rana Gruber’s cash breakeven level. While we have lifted our 2022–2023e] EPS by 32–54%, we have increased our target price by only 12%, as we still see the company more as a call option on iron ore prices. We also believe
the stock should be trading at a considerable discount to the implicit valuation from the high prices in the market currently, as a pessimistic price scenario would likely lead to a greater loss (due to Rana Gruber’s relatively high breakeven price) than for most other listed raw-material producers. We highlight Rana Gruber as one of the most attractive stocks in our coverage exposed to a potential continued raw-material rally


Sparebank: Norske Skog – Acquisition target, newsprint prices trending up and the share price could double in a normalised newsprint market

Below is a summary of research of Norske Skog. The company is reporting this Friday. We are very bullish on NSKOG due to its restructuring potential. We were right on our Circa Idea that doubled money. NSKOG owns 32% of Circa.

The green activities by NSKOG have a value equal to its market cap. I spoke to the management. They plan to focus on this story in their Q presentaion.

SpareBank research summary:


We keep our Buy recommendation and NOK50 target price ahead of Q1 2021 which will be reported on Friday 23 April. The key reasons why we recommend buying NKSOG is i) NSKOG is in our mind an acquisition target, ii) newsprint prices are increasing in Asia and we argue that this is will affect newsprint prices in Europe from 2H 2021 and iii) we estimate that the conversion from newsprint to container board is accretive for shareholders in NSKOG. The main concern for investors in NSKOG is in our mind lack of cash flow to cover capex and risk for capex overruns. We expect that cash flows will increase with a stronger market and argue that the risk profile for the conversion capex is not as high as investors interpret. With newsprint prices 15% below 2019 level and an EBITDA-margin around 10%, NSKOG’s market cap could increase with NOK4bn – which is more than the containerboard conversion capex -> attractive risk/reward, in our mind.

Our analysis

  • We would not be surprised if NKSOG is acquired by StoraEnso. Our take is that NSKOG fits well with StoraEnso as i) StoraEnso is currently evaluating a consumer board investment in Skoghall with an estimated capex of EUR800 to 850m, ii) StoraEnso expexts growth from building solutions and biomaterials (fit with NSKOG’s Circa, Cebina, bio-composites and FibreMatrix) and iii) a NSKOG acquisition would be a small ad-on for Stora Enso (NSKOG’s market cap is 2.5% of StoraEnso’s market cap). In addition, we estimate that OceanWood, which owns 42.85% of NSKOG has an IRR of 15% if it exits its investment at current market cap.
  • Newsprint prices expected up from 2H 2021 – prices have started to increase in Asia. Our take is that more than 20% of newsprint capacity will be taken out in 2020/2021 (based on announcements from UPM, Stora Enso and SCA). Our take is that this will have a positive effect on prices from 2H 2021. The effect of lower supply has in our mind had an effect on prices, especially in Asia, and according to our knowledge NKSOG is now exporting to exporting to Asia. Our assumption on higher prices as production is down is supported by statements from RISI the last months commenting in the price increases in Asia and this will most likely affect Europe from 2H 2021.
  • Accretive containerboard conversion we argue investors are too concerned about capex overruns and funding. Based on the margin competitors are reporting, we argue that the containerboard conversion is accretive for NSKOG. The capex for NKSOG is sizable compared to its size, but we that expect cash flow from operations and increased leverage will be sufficient to cover the capex from late 2021 to 1H 2023. The EUR350m containerboard conversion is a sizeable investment for NSKOG, but the capex should in our mind be split according to the risk for the different capex components. We have divided the capex into three risk categories and see low capex risk for increased storage capacity and water treatment (estimate EUR70m of capex) and medium risk for OCC* treatment (estimate EUR140m of capex) and higher risk for conversion capex (estimate EUR140m of capex).


XBRANE Idea Rated As Best Idea by SeekingAlpha

During the last two days I published my bullish view on Xbrane. On Friday, SeekingAlpha published an article on Xbeane opportunity.

i noticed today that SA PRO Editors republished the article among the Best SeekingAlpha ideas. It is a reconfirmation of the idea.

I am long XBRANE. My top position in Healthcare.



I wrote yesterday about Xbrane. Most interesting biotech play in Scandinavia. Phase 3 study just completed. The company announced an Investor day in four weeks time. Clear indication of positive outcome. Analysts believe the share price will double this year and double again next year. Very bullish.

Today a good article was published on SeekingAlpha. Worth the read:


Xbrane Biopharma is due to please investors on may 17

Xbrane Biopharma is due to lunch its first Biosimilar product by the end of the year with help of its partners Bausch and Lomb and Strada. They first need to announce the Phase 3 results. In November, they announced that they will have their Phase 3 results available in May. Today they announced a capital markets day for May 17. I would assume that they would be talking about the Phase 3. What else is there to talk about.

In summary:

  1. What we know: They are getting their Phase 3 study results gradually. We know that the last patient was recruited in November, the study takes 6 months, therefore the last results should be available in May.
  2. Investor day vs press release – in my experience, when companies want to announce a big good news, they do investor day. If they are about to announce bad news, they do press release. You rarely announce a bad news on an investor day.
  3. Implications – If the above is correct, I believe that today´s announcement could indicate that the Phase 3 results are positive and that the good news would be announced on that day. Of course there is a risk. If you look at Biosimilars – XBrane on their web, they show a graph that biosimilars have a Phase 3 success rate of 78%. I believe that the today´s XBrane capital day announcement brings this number well above 90%.

I first recommended buying Xbrane on 2 March 2021. The share price was around 90 NOK. Today it reached 105NOK . 16% gain in one month. I believe that the share price should be trading at least at double by the end of this year.


Unjustified Selloff in Africa Energy is a buying opportunity

Congratulations to all who played Kyoto trade idea last week. The share price re-rated by almost 30%. Good trade!

Africa Energy sold off today based on misunderstood Reuters Article. It is a buying opportunity. Below is research by Pareto Securities describing the situation. We find the AEC most interesting oil play. The summary of the case is summarized in the below article.

Giant Hydrocarbons Discovery By Total And Africa Energy Better Than Expected (OTCMKTS:HPMCF) | Seeking Alpha

Pareto Research published today:

Misinterpretation of news article creates large buying opportunity
Africa Energy just declined 10-15% due to a Reuters article (link) indicating that Total postpones future drilling activity in South Africa. This is based on a withdrawal of an application for Environmental Authorisation for exploration drilling in the Kloofpadda area. In our view, this is not surprising as Total has previously stated that it near-term will focus on the development of the area containing the Brulpadda and Luiperd discoveries. The partners have already secured approvals for further drilling in this region and today’s news will therefore not impact future activity. In our view, the market is misinterpreting today’s news creating a good buying opportunity. We will keep our estimates and valuation unchanged – BUY/TP SEK 4.50                       

Initiation Research for Huddly IPO should put it on the strong rerating trajectory

Two weeks ago I suggested to look at buying IPOs in NOrway that sold off after its lunch. It was a good ideas and the share prices are up 10-30%. One of the was Huddly. Very solid company. Today, Pareto published the initiation research – see below. I am long and I am very bullish in the share price recovery of Huddly. Research is below:

High growth, unmatched partners & mispriced equity

Huddly is a Norwegian provider of video conference cameras, founded in 2013. Unlike other camera providers, Huddly’s products are software defined – atechnology endorsed by Tier 1 partners such as Google and Crestron, who continuously include Huddly’s cameras in their video collaboration bundles. A setup that has proved to be highly successful with triple-digit sales growth (118% revenue CAGR ’18-20) and world-class margins (29% EBIT margin ‘20). Despite this, the current valuation (~14x ’22e EBIT) implies a ~35-70% discount to peers currently growing at a slower pace, and seemingly doesn’t take into account our thesis of increased enterprise spending on video conference rooms in a post-Covid world. We initiate coverage with a BUY/TP of NOK 28, equalling pricing in-linewith peers and an upside of >80% to the current share price.Value proposition endorsed by Tier 1 partners

Unlike most camera providers, which offer standardized and non-dynamic solutions, Huddly’s products are all based on a common software platform. This enablesHuddly to do software upgrades, exploit data to enhance future products and maximize the current user experiences. Combined with an AI supported engine, it also offers features such as smart zooming, which frames the people in the room, and the ability to identify, extract and process content in the video stream, and much more. We like to think of Huddly’s products as software sold through hardware, and similarly the business model as a hybrid between the two. This new approach to video collaboration hardware has not gone unnoticed, with nine strategic partnerships now in place. As a testimony of its quality, eight out of 13 video collaboration bundles Google offers include Huddly cameras, thus being the preferred partner ahead of Logitech. With its core market estimated to grow by ~30% p.a. by 2023e and the return-to-the-office situation likely to alter the demand in favor of high-quality providers, we believe Huddly is positioned to continue its rise to video stardom.Triple digit sales growth & software like marginsSince the first commercial shipment of cameras in 2017, Huddly has grown revenues from close to nothing to NOK 366m in 2020 (118% CAGR ’18-20). While growth has been highly impressive on its own, a lean, R&D-centric organization combined with a fab-less setup and a strategic/channel partner sales strategy has not left profitability demised, as the EBIT margin reached 29% in 2020, above the median competitor at ~18%. With an ever-increasing product portfolio and partnerships with Tier 1 names (Google, Crestron and more) that continuously include Huddly’s cameras in their video collaboration bundles, Huddly has rapidly become a serious contender for the potential USD 90bn video conferencing market. Reflecting this, we estimate the company to grow revenues to NOK ~970m by 2023e, equalling a 2020-23e CAGR of 39% and achieve an avg. EBIT margin of 26% over the same years. While profitability will take a small hit in 2021e due to up-scaling, new product launches and unfavourable FX-movements, the outsourcing of both sales and production leaves little room for increased costs besides R&D over the next years. We therefore estimate margins to improve in 2022e and return to current levels in 2023e (EBIT margin of 28-29%).  Valuation – BUY/TP NOK 28Reflecting multiples in line with peers (22x ‘22e EBITDA & 29x ‘22e EBIT) and a DCF approach (8% WACC & 3% growth) we initiate coverage of Huddly with a Buy recommendation and a TP of NOK 28, equalling an upside of >80% to the current share price. Despite positive outlooks, the stock currently trades at 14x ‘22eEBIT, a ~35% and ~70% discount to hardware collaboration and Nordic software peers, respectively. We believe the latest drawbacks reflect a softer pre-announced Q1 and a misconception that Huddly was a Covid-19 trade. Contrary, we believe demand for Huddly’s products will accelerate post-pandemic and see upside to our estimates. With the stock already trading at a discount to slower growing, less profitable peers, we believe the current valuation offers a risk/reward that will not go unnoticed for too long. Key risks include loss of key partnerships and the associated revenue and increased competition.

Scandinavian Opportunities – Corporate turnarounds

There are three companies that I like in Scandinavia that are restructuring their business. They have one common feature. They already told us, that they got new sales partnerships. The partnerships have not transferred into sales, yet, but there is a very high probability that they will. In all three cases, when this happens the share price should multiply.

NEXT Biometrics – I enclose the thesis below. It is well summarized and easy to understand. In summary that company has signed 16 sales agreements that are yet to transfer into sales orders. Pareto estimate that when this happen the quarterly revenues should increase by 400%. They expect this by the Q4 this year. If that happens the share price should increase three to four times as well. I find it very attractive. Since the article the company announced a new partnership with European major with 20 bil EURO sales. Just this company could multiply the revenues of NEXT. I am long NEXT and I am very bullish.

Hofseth Biocare – very similar situation to NEXT. The company was processing Salmon waste for pet feed. They have remodeled their technology and now they stop supplying pets and focused on humans. They sell Salmon Oil and Salmon protein. Salmon protein is to be used for protein human foods. Last week they announced the game changing partnership – they signed contract with protein food producer Garden of Life (owned by Nestle). They already shipped the first protein cargo to Garden of Life that is planning to lunch the product in the US in Q3. Again just this contract has a potential to multiply HBC’s revenues and its share price. On the top of it, I found that the company is now selling its Salmon oil on Amazon, in 400 Lidl stores in Germany and in 1000 stores of Cosco USA. The company indicated in the past that they plan to do it, but for some reason they did not announce it. Fortunately we have Google that can give us the information. Look at the below link at an article that again summarizes the story. After the above is achieved the company is planing to lunch medical supplements. They got the first FDA approval this year. When this achieved the margins will jump further.

Norske Skog – it is the second largest paper company in the world. What the market does not appreciate are two things: it has a green product portfolio that has a value euqal to its current market cap. So either the market gives its paper business zero value or the market does not recognize the green portfolio. I believe that it is the later. On the top of it the company is now converting part of its paper production into Green Packaging production, that can be used for example for paper plates to replace plastic in fast food chains. The product has triple margins vs the paper production. The market does not appreciate this either. I speak to the company and they do plan to inform the investors on the value creation opportunity. See the below link for description of the value creation.


First, I would like to congratulate all those, who traded the Scandinavian Opportunities published about a week ago. Very good returns. The call on Circa is has been excellent for the last two weeks. You could almost double your money.

Two ideas are from a Fearnley daily report. I copy below their report in full. I am long both and I am glad Fearnley support this two ideas. I believe both are candidates for doubling during the next quarter:

ALUS/FREYR – Asymmetrical risk with zero downside until merger
Looks similar to HCCH/Fusion Fuel (now HTOO) ahead of its merger when the stock was essentially flat until two weeks ahead of the EGM, then rallied ~50% over the two weeks going into the EGM and another 35% on the day when the merger was approved.

We might be in a different market, but redemption value in ALUS is $10.07/share which is where the stock closed yesterday. ALUS filed with the SEC two weeks ago and said the EGM will be held promptly once the statement is declared effective, likely in late April / early May. ALUS is merging with FREYR, a Norwegian developer of clean, next-generation battery cell production capacity.

FREYR har hired executives from the oil/gas and aluminum industries (Equinor, Hydro, BP), who are experienced in running large projects. The company has received NOK 181m in support from the Norwegian government so far. While ALUS has $290m in cash on balance, the combined company has a fully-committed PIPE equity issue of $600m anchored by Koch Industries; Glencore; Fidelity FMR; and Franklin Templeton, among others. FREYR is located in a region with vast supplies of renewable energy and seabed minerals (cobalt and manganese). Commercial production will start in 1H23 and the company is currently in discussions with 40 potential customers within electrical vehicles, power production and marine electrification. The industry needs to quadruple capacity to at least 2TWh in 2030 in order to meet demand (Bloomberg). Note Sweden’s Northvolt recently won a $14bn order to supply Audi and Porsche. ALUS will likely get increased attention going into the merger, with zero downside to redemption value. Latest investor presentation:

HTOO – Spoke with company, Evora on track for Q2
Fusion Fuel is on track with Evora production start this quarter, also with the production facility development. Evora will be a game changer for the company and a ‘proof of concept’ on an industrial scale. The company aims to get the first part of the project onstream, audited and verified as early as possible in 2Q21 which will be announced to the market. The company is sufficiently capitalized to carry out activities into 2022. Over the next 6 months, the following will happen: 1) Production start at Evora, major share price trigger; 2) production facility will be well underway; and 3) large agreements and projects will be announced and committed. Management thinks a dual listing in Oslo may make sense going forward. Interesting share price level to get in now ahead of the largest catalysts to date.

BWLPG/Avance/Dorian – Rates continue upwards Our analyst prefers BWLPG and Dorian, but a rising tide suggests Avance will move too. VLGC rates continue to recover from the March doldrums with levels now breaching $30k/d ($20-25k/d is cash break-even for the various players). In the Western hemisphere, April cargoes have continued to absorb the vessel overhang which coupled with discharge issues in the East has created a substantially tighter market than what was the case a few weeks ago. Vessel exiting the market for DDs have undershot our expectations YTD, but with several vessels set to enter docks near-term we see a continued tight market balance moving forward.

Top BUY Ideas (adding LPG stocks/MGN, removing AOW/SGRE): LPG stocks, MGN, DVD, MPCES, TE, LSG, ODL, WALWIL, ZIM, NRS, HRGI, OHT, NFE, REC, AKSO, HTOO, OSUN
Top SELL Ideas: TGS, TK US


Norske skog is Worlds second largest paper company, that is changing its production capacity from print paper into green renewable packaging, that should be used in fast food chains etc. The company estimates that the renewable packaging should increase EBITDA by 500%. NSKOG is now very cheap – trading at 50% vs its peers. On the top of it it has a portfolio of new renewable business, that have a higher value than its market capitalization. So either its paper business is valued at zero by the market or the market does not yet appreciate the value of its renewable businesses.

The reason for this valuation gap is that everybody in Scandinavia was chasing renewables IPO and neglected NSKOG. This will change with the new communication strategy by the company.

I spoke to the company last week. They do recognize this valuation gap and will focus their communications to demonstrate the value of the renewable businesses and the value creation by its restructuring. It was already reflected in the annual report published last week. I am sure it will be reflected in their Q1 presentation, that will take place on 23 April.

We are long NSKOG. I believe it is an interesting short term play (Q1 presentation should be reflected in wave of research updates by brokers) as well as long term play (capitalizing on the restructuring that the company announced). Pareto says below: We expect more updates on certain projects throughout the year, and combined with recovering paper prices, triggers are lined up for a vast revaluation. We are quite bullish NSKOG.

Valuation still barely reflecting legacy assets

We expect a challenging H1’21 and reduce 2021 estimates following lower publication paper prices. LT outlook is largely unchanged,and capacity closures should rebalance the market from H2. Focus remains on non-paper initiatives and conversion projects. At current market value for CIRCA, NSKOG’s legacy paper assets are trading at modest 3.0x EV/EBITDA’22e with no value assigned to the project portfolio – puzzling in our view. We estimate a SOTP value of NOK 58/share, and see triggers lined up for a revaluation. Buyand TP NOK 50 reiterated.NSKOG due to report Q1’21 results on 23 April at 8:00 CET

We expect EBITDA adj. of NOK 38m for Q1, down from NOK 317m last year. This driven by lower prices for publication paper, down 15-20% y/y. Though efficiency improvements should offset some of the price shortfall. Focus on non-paper initiatives and market outlook for H2’21.

Estimates down on lower prices
We reduce EBITDA’21-22e by 27-3% amid expectations of lower prices for publication paper in H1’21e (5-10% down from H2’20). The market will likely remain imbalanced until volumes from capacity closures are fully taken out (~2.1mt in Europe). As such, we expect prices to recover during H2’21, supported by recent price uptick in North America and Asia.

Buy and TP NOK 50 reiterated
Our SOTP valuation indicates significant revaluation potential as the market barely reflects ‘legacy’ paper assets. Only adding the stake in Circa Group (at market value), we see ~30% upside to current share price. On top of this, several promising projects are coming up – totally neglected in our view. We expect more updates on certain projects throughout the year, and combined with recovering paper prices, triggers are lined up for a vast revaluation. We reiterate Buy and TP of NOK 50/sh.

Below is a summary of Pareto Research on Norske Skog published today: